TAKING EGYPT'S AUTOMOTIVE INDUSTRY TO THE NEXT LEVEL - Enterprise ...
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INDUSTRY NOTES
SEPTEMBER 2019
TAKING EGYPT’S AUTOMOTIVE
INDUSTRY TO THE NEXT LEVEL
INSIDE THIS The return of Mercedes-Benz and other OEMs to Egypt’s local
assembly market has boosted confidence in the potential
ISSUE comeback of Egypt’s automotive industry. To encourage further
PG. 2 - Overview investments, the Government of Egypt is currently developing a
___________________________
PG. 2- History
package of incentives to promote the local production of vehicles
___________________________ and its feeding industries, thus paving the way for new OEMs and
PG. 3- Egypt’s vehicles market today feeding companies to enhance their footprint in Egypt.
___________________________
PG. 5 - Main local assemblers Developing Egypt’s R&D sector, through smart policies and
___________________________ regularly updated concrete incentives, should also be considered.
PG. 5 - The return of OEMs
___________________________
PG. 6- Feeding industry
___________________________
PG. 7 - A new page with OEMs?
___________________________
PG. 7 - Automotive strategy
___________________________
PG. 8 - Challenges facing local
automotive assemblers
___________________________
PG. 10 - Regional competitors
___________________________
PG. 11- Opportunity in Egypt
___________________________
PG. 13- Policy recommendations
1
OVERVIEW
Egypt’s automotive industry is dominated by assembly (companies that supply parts or systems directly to OEMs)
based supply chains and hundreds of automotive feeding to Egypt. But achieving this objective requires formulating
companies. Relatively, Egypt’s automotive market is a smart set of regularly updated incentives to attract such
currently small and has marginal tangible incentives to investments and thus enable Egypt to regain its standing
enable local assemblers to compete with imported as an automotive industry leader and compete with fierce
vehicles. The industry has faced increasing business regional players.
challenges, particularly following the events of the
Looking towards the future, the GoE has also begun
January 25th revolution and associated local economic
considering a national e-mobility strategy, including by
hardship.
taking initial step towards developing a regulatory and
In fact, automotive sales in Egypt only began to (slightly) policy framework for electric vehicles in Egypt. A
rebound as of January 2018 following a slump that was ministerial committee, headed by the Minister of Military
exacerbated by the devaluation of the Egyptian Pound in Production, has been tasked with formulating a national
2016. But the end of custom duties on imported European policy with regards to the licensing, registration,
cars, as of 1/1/2019, renewed local assemblers’ demands importation, local assembling, manufacturing, electric
of the need to reconsider the existing unfair playing field charging, and other aspects of a viable electric vehicles
within Egypt’s automotive landscape. sector in Egypt. This committee has yet to issue its
recommendations.
Vehicles Sales increase by 42.9% in 2018
from a plumming 2017 HISTORY
Imported The path to establishing a national automotive industry in
Egypt began in 1959. Then, the GoE signed a contract with
Locally Assembled a German firm for the local manufacture of trucks and
buses, which also called for the creation of a new Egyptian
94,400 company in charge of assembling the vehicles in addition
73,100
99,400 to manufacturing approximately half of the vehicle
62,400
components. In 1961, El Nasr Automotive Manufacturing
2017 2018 Company (NASCO) was established in Helwan, a district
Source: AMIC Egypt
just south of Cairo. NASCO entered into agreements with
The Government of Egypt (GoE) considers the various European companies to produce tractors (with
development of Egypt’s automotive industry a matter of Yugoslavia’s IMR), trucks (with Germany’s BLUMHARDT),
high priority and is preparing to roll out a ‘national and passenger cars (with Italy’s FIAT).
program’ to promote the local production of vehicles and
its feeding industries. This renewed policy is intended to Within ten years of its launch, NASCO claimed the
provide new incentives to boost domestic manufacturing production of approximately 3000 trucks and 1600 buses
and assembly, while enhancing local assemblers’ ability to per year, with 70% local content. In a peak year in the
strengthen their market position and export their 1960s the company announced its assembly of 21,000
products to foreign markets. According to GoE statements, passenger cars with 30% local content. NASCO was the
Egypt is targeting the manufacture of 500,000 cars first and, at that time, the only component’s production
company in Egypt, and the monopoly position it enjoyed
annually by 2022, of which 100,000 will be exported.
enabled it to profit substantially.
With an improved economic standing, the GoE has
signaled its interest in attracting additional Original Wars and economic hardships for Egypt in the 1960s and
1970s had a negative effect on NASCO’s budget and
Equipment Manufacturers (OEMs) and Tier 1 companies
2
expansion plans, and hampered the feeder industry’s
EGYPT’S VEHICLES MARKET TODAY
growth. Under extreme financial pressure, NASCO gave
priority to the production of trucks and buses at the
expense of the passenger car industry. A major downturn
occurred in 1974 when the GoE adopted policies that AUTOMOTIVE PRODUCERS WITH
ended the previous ban on the importation of foreign cars 12 ASSEMBLY LINES
to Egypt. Furthermore, the GoE directed NASCO to focus
its passenger car assembly operations on one model, the
Fiat/Nasr 128. GoE price-fixing policies for public sector
PERCENT LOCAL COMPONENTS IN THE
industrial products also continued despite rising costs.
17 FINAL PRODUCT
500 AUTOMOBILE FEEDING COMPANIES
BN USD INVESTED IN EGYPT’S AUTO
3 FEEDING INDUSTRY/ YEAR
BIGGEST EXPORTED ENGINEERING
2nd INDUSTRY CATEGORY IS AUTO
FEEDING PRODUCTS (27%)
In 1994, the GoE put up NASCO for sale under its famous
privatization program, which in turn attracted bids from THOUSAND VEHICLES SOLD IN THE
companies such as FIAT, DAEWOO, IVECO and others; all
of which were considered too low.
194 EGYPTIAN MARKET IN 2018
Today, NASCO’s operations are on a very limited scale,
restricted to manufacturing some of the products of El
PERCENT OF CARS SOLD IN 2018 HAD
Nasr Forging Company and the Eastern Company for a 65 EITHER A 1.6 LITRE ENGINE OR SMALLER
very small revenue. It remains a government-owned
company in search of an investor to revive its years of
glory. The GoE has and continues to engage a number of
PERCENT DECLINE IN LOCALLY
OEMs to upgrade the production lines of the company and 12.5
resume its assembly of buses, trucks and passenger cars, ASSEMBLED VEHICLES IN 2018
in addition to vehicle components.
PERCENT OF PASSENGER CARS ARE 15
50 YEARS OR OLDER
3
Registered Passenger Vehicles Imported Passenger Cars
in Egypt according to their origins
4,712,562
H1 2019
4,299,884 23,037
4,057,558
3,737,984
3,470,426 49%
3,231,513
10,293
9,095
3,398
1,158
European Japanese Korean Chinese American
Source: El Mal News –August 20, 2019
2012 2013 2014 2015 2016 2017
Source: CEIC Database
Today, there are 20 European passenger car brands in
VEHICLE SALES SUSTAIN DOWNWARD TREND DURING Egypt. European cars attributed to 49% of the 47,026
THE FIRST HALF OF THE YEAR imported cars in Egypt during the first half of 2019, with
Renault standing as the highest imported passenger
According to recently published figures from the vehicle to Egypt. Imports of Peugeot cars have also greatly
Automotive Information Council (AMIC), total car sales in increased by 335%, in comparison with H1 2018, with the
Egypt stood at 74,084 vehicles in 1H2019, down 6.8% y-o- importation of 3,673 cars by H1 2019. Other imported
y from 79,474 during the same period last year. Passenger European passenger cars to Egypt include Opel, SEAT,
car sales dropped 11% y-o-y to 51,311 units, while bus Mercedes, Fiat and Scoda respectively.
sales climbed 4% y-o-y to 7,053. The automotive industry
had shown signs of recovery last year following a slump EGYPT’S AUTO EXPORTS INCREASE BY 45% IN 2019
that was exacerbated by the EGP devaluation in 2016.
According to the Central Agency for Public Mobilization
SIGNIFICANT RISE OF EUROPEAN PASSENGER CAR and Statistics (CAPMAS), Egypt exports of locally
IMPORTS IN EGYPT assembled vehicles increased to USD 32.7 million during
the first 5 months of 2019, compared to USD 22.5 million
As the final phase of the EU-Egypt Association Agreement last year.
came into effect on January 1st, 2019, imported European
passenger cars increased 37% during the first half of 2019. Congo and Rwanda were new added destinations for
Egypt’s auto exports markets. Currently, Egypt exports
locally assembled vehicles and auto parts to 17 countries.
They include the United Kingdom, which accounted for
53.4% for the vehicles after importing from Egypt 73 buses
worth USD 17.3 million in 2018-2019. Additional export
markets include, respectively, France (12.2% of Egypt’s
auto exports), Saudi Arabia (8.2%) and then the
Philippines, Cameron, Ivory Senegal, Niger, Singapore,
Mauritania, Hong Kong and UAE.
Most of Egypt’s auto exports are in the form of buses
despite the high local component requirement of 60%.
One of the restrictions that is paralyzing Egypt’s export
capabilities lies within the exporters. Many assemblers
4
lack the proper documentations needed – such as the VAT On June 24, 2019, the GoE and Mercedes-Benz signed a
documents proving the local content percentage- Memorandum of Understanding (MoU) for local assembly
therefore retrieve their exports incentives. of Mercedes-Benz passenger cars in Egypt. This important
development followed the inauguration of KIA’s assembly
MAIN LOCAL ASSEMBLERS line for its Sorento (SUV) in 6th of October city in
December 2018 to produce 15,000 vehicles per year.)
GB Ghabbour Auto (GB Auto) is the largest player in the
local passenger car market in terms of market share and
production capacity. GB Auto’s assembly operations
include production of passenger cars, commercial vehicles,
motorcycles and three-wheelers at plants in the Greater
Cairo Area. Assembly largely refers to Completely-
Knocked-Down (CKD) or Semi-Knocked-Down (SKD)
vehicles imported as kits from leading international
brands, including Hyundai (21% market share in 2018) and
Geely (3.2% market share in 2018), that are then
assembled with a legally mandated percentage of local
content.
GB Auto’s sales and distribution activities encompass the
passenger cars line of business in Egypt, Iraq and Algeria,
The MoU describes a local Mercedes-Benz passenger car
commercial vehicles and construction equipment in Egypt,
assembly and contains other potential fields of
and tires in Egypt, Iraq, Algeria, and Jordan.
cooperation. The assembly will be set up by a local
GB Auto achieved EGP 25.8 billion in revenues in 2018. business partner (The Egyptian-German Automotive
Company). At the same time, Mercedes-Benz Cars
Mansour Automotive is the biggest General Motor (GM) emphasized the involvement and know-how of Egyptian
dealer in the world, selling around 100,000 vehicles a year suppliers.
around the world. It also owns franchises for Opel,
Chevrolet (best-selling car brand in Egypt in 2018 with a Mercedes-Benz had shut down its assembly line in mid-
21% market share), Cadillac, Suzuki, and Isuzu. In a joint 2015 due to foreign currency shortages and as completely
venture with GM it also manufactures cars, trucks and built-up cars (CBUs) were made cheaper in light of falling
pickups for its various markets. tariffs on EU-assembled cars, which hit zero at the start of
this year.
Mansour Automotive is GM’s only licensed partner in
Egypt, Ghana, Uganda, Iraq and Libya. Mercedes-Benz passenger cars imports in Egypt increased
by 82.4% during H1 2019. From January-June 2019, Egypt
Nissan has the third largest market share in Egypt, imported 2,646 Mercedes-Benz cars, versus 1,451 in H1
standing at 11% in 2018. It produces an average of 22,000 2018.
units per year.
In its recent announcement, Mercedes-Benz stipulated
THE RETURN OF OEMS that further future investments in Egypt are also
conceivable, including the possible expansion of the
In 2018-2019, a number of OEMs announced their dealer network, a logistical hub in the Suez Canal Special
intention to enhance their footprint in Egypt’s auto Economic Zone and a training center. Furthermore, the
market. company has offered to make its specialist expertise with
respect to modern mobility concepts, e-mobility and
electric vehicles, as well as autonomous driving, available.
5The German manufacturer is currently securing more than supplying international brands assembling their models
1,000 direct and indirect jobs in Egypt with its own import locally or selling manufacturer-approved spare parts.
and sales organization, a central spare parts warehouse However, the local components market is limited with
and numerous authorized retailers and workshops in only 80 auto feeders directly supplying local assembly
Cairo, Giza, Alexandria and Hurghada. plants.
Mercedes-Benz Egypt S.A.E., a wholly-owned subsidiary of The auto feeding industry is an important source of
Daimler AG, is the exclusive sales partner of Mercedes- foreign currency for Egypt’s economy. 60 auto feeders
Benz Cars for Mercedes-Benz passenger cars and export their products to foreign markets, although 480
replacement parts in Egypt. The company has been in auto feeders are registered to do so. Auto feeders are the
operation since 1999. second biggest exporter in the engineering industries
category, accounting for 27% of engineering exports in
Brilliance Auto declared its intention to reassemble 2017. The main market for automotive feeders is Europe
passenger cars in Egypt in Q1 2020, through a USD 120 (80% of all Egyptian auto parts are exported). Arab
million investment. Brilliance Egypt also announced plans countries account for 18% and the rest goes to Asia.
to launch its first electric car by the end of 2019.
Total investment in automotive industry currently stands
at USD 3 billion; USD 1.6 billion in the automotive industry
and USD 1.4 billion in the feeding industries.
TIER 1 AUTOMOTIVE SUPPLIERS IN EGYPT
In March 2018, Kia Motors signed an agreement with Two main tier 1 automotive suppliers are currently
Egyptian International Trading and Agencies to invest EGP present in Egypt; Valeo and Brightskies Technologies.
4.2 bn in a car assembly facility in Egypt over the following
five years. The project, which included an investment of
EGP 262 million in 2019, is expected to have a nameplate
capacity of 15,000 cars per year. Kia Motors announced
that this is the first auto assembly project developed by Valeo, the French tier 1 software supplier’s office in Egypt,
Kia in the Middle East. is the Group’s main software development center and the
largest. Cairo-based Valeo engineers have developed
FEEDING INDUSTRY various software enabling innovative technologies such as
Valeo Park4U – automated parking, LED/Laser beam
Egypt’s automobile feeding industry is relatively young,
technologies and Stop-Start.
started in the 1980s by General Motors Egypt. The
industry thrived in 2006 and 2007 as the country’s Brightskies Technologies provides services around high
economic outlook was positive and customs and duties performance computing and code optimization,
were high enough to entice investors to come to Egypt. virtualization and cloud computing, big data, as well as
This in turn encouraged OEMs, such as Jeep, BMW and embedded systems software development.
Mercedes-Benz, to assemble cars in Egypt despite being
required by law to secure at least 40% of parts from TIER 2 AND 3 AUTOMOTIVE SUPPLIERS
domestic suppliers, which did not exist. (The domestic Tier 2 and Tier 3 components factories in Egypt
content mandate later increased to 45%) manufacture a number of products including:
Tires and inner tubes
There are 500 automobile feeding companies in Egypt
Glass and windshields
today, serving 16 assembly plants. They mainly produce
Aluminum parts
exhaust components, air conditioning units, radiators,
Electrical wires
plastics for interiors, windshields, mirrors and seats,
6 Batteries However, other disputes remain unresolved. For example,
Leaf springs Toyota Motor Corporation (TMC) has complained that
Oil filters the standard for custom duty imposed on Toyota service
Air filters parts increased by approximately 3 times more than the
Upholstery material amounts paid before September 2015, when the Minister
Plastic parts and bumpers of Finance’s Decrees No. 70 dated 11/6/2015 and the
Valuation Guidance No. 86 dated 22/6/2015 were issued.
Dr. Greiche Egypt is the leading glass manufacturer in the
Middle East and Africa for OEMs and the replacement TMC believes that a misunderstanding by the Egyptian
market. It produces complete glass sets for vehicles and Customs Authority exists regarding the method of
provides vehicle glass replacement. Its main clients in calculating discounted prices of such services parts
Egypt are Ghabbour Auto, General Motors, Nissan and imported to Toyota Egypt (TE) in order to reduce import
Toyota. duty amount.
Established in 1976, Mobica supplies world class
AUTOMOTIVE STRATEGY
automotive furniture for OEMs such as BMW, Nissan, GM,
Jeep, Toyota, Kia and Hyundai by utilizing advanced The GoE considers the automotive industry an important
technologies and management systems. pillar in Egypt’s industrial development, but has, over the
past few years, issued conflicting signals on the way
Chloride Egypt is the leading manufacturer of automotive
forward in terms of its strategy on developing and
and industrial batteries with an annual production
enhancing Egypt’s local production of automobiles.
capacity of 2 million batteries. Chloride has 2
manufacturing plants in Egypt. It supplies brands such as In 2017, it was widely reported that the GoE was crafting
Chevrolet, Nissan, Toyota, Suzuki, Kia and GM. an ‘automotive directive’ that would have provided
incentives to local assemblers to move further up the
A NEW PAGE WITH OEMS? value chain into manufacturing in return for a measure of
protection against EU, Moroccan and Turkish imports.
In June 2019, two pending disputes between the GoE and
major car manufacturers were resolved. In December 2018, the Minister of Trade and Industry,
Amr Nassar, downplayed these reports, confirming that
The first dispute, with Mercedes-Benz over the calculation
the GoE was working on a strategy to promote
of import duties, was resolved upon the Cabinet’s dispute
investments in the automotive sector but had no intention
resolution committee ruling in favor of Mercedes-Benz in
to announce an automotive directive. He added that the
its dispute with Egypt’s Customs Authority. As a result, an
GoE would likely emulate the Moroccan and Slovakian
Egyptian importer of Mercedes-Benz vehicles won an EGP
models of concluding agreements with a number of OEMs
700 million customs refund. The company was initially
to locally manufacture specific models in large numbers,
asked to pay an extra EGP 700 mn in a dispute over the
and utilizing Egypt as an export hub for such models, in
basis of calculation for import duties. The sum was held in
return for various tailor-made incentives that seek to
trust by the authority while the dispute committee took
enhance production and export capabilities.
up the case.
Then in June 2019, the Prime Minister’s office announced the
The second resolved dispute, with BMW, witnessed an
GoE’s plan to develop a ‘national program’ to promote the
EGP 55 million settlement with the customs authority,
production of vehicles and its feeding industries in Egypt. This
ending a dispute over customs tariffs and valuations of
program is expected to provide new incentives to spur
imported cars.
domestic manufacturing and assembly that would include
notable custom discounts on automotive components. The
7objective is to enhance local car assemblers and 31.1%). Prices for non-luxury passenger vehicles from the
manufacturers’ ability to strengthen their market position EU dropped between EGP 20,000 and EGP 40,000. Luxury
and export their products to foreign markets. car prices by around EGP 100,000 to EGP 150,000.
In the build-up to the upcoming new policy, the Minister As a result, local non-EU vehicles assemblers- which are
of Trade and Industry decided, on June 9th 2019, to cancel subjected to various custom duties (on local components)-
his predecessor’s decree no. 371/2018. The repealed continue to complain of challenges faced in competing
decree had regulated the method of determining the with customs-exempt European vehicles. Non-European
percentages of local component manufactured in the auto parts are subjected to around 5% to 7% custom
automotive industry and its feeding industries, stipulating duties, 3% to 8.5% development fees.
that the percentage of domestic manufacturing in the
automobile industry should not be less than 46% (with a Still, the tariff removal is unlikely to have a broader effect
1% annual increase), and that the contribution of the on market prices, as more than 65% of cars sold in Egypt
assembly line in the local manufacturing rate of the car have either a 1.6-litre engine or smaller.
should stand at 28%.
Under the Minister of Trade and Industry’s new decree,
Egypt's vehicles imports
the locally manufactured components percentage is kept (USD thousands)
at 45%. The Ministry of Industry also decided to re-
6,269,528
operationalize the decision of the Minister of Industry and 5,242,638 4,590,878 4,777,930
3,139,557
Mineral Resources No. 136/1994, regarding the
assessment of the contribution rate of assembly lines, as
well as re-operationalize the Minister of Commerce’s
2014 2015 2016 2017 2018
decision No. 907/2005.
Source: CEIC Database
CHALLENGES FACING LOCAL The impact of the Egypt-EU Association Agreement zero
AUTOMOTIVE ASSEMBLERS customs was notable by the end of H1 2019. Imports of
passenger cars of European origin increased by 37%
UNFAIR PLAYING FIELD during the first 6 months of 2019, while American cars
imports decreased by 56.2%. During the same period,
The final phase of the EU-Egypt Association Agreement Korean cars imports also decreased by 19.3% while
(entered into force in 2004), which led to the gradual imports of Japanese cars only increased by 15.3%.
reduction of customs duties on imported European cars, (Source: Al Mal News 20/8/2019)
was completed on January 1st, 2019, resulting in duties on
imported cars from Europe falling to 0%. Furthermore, the GoE’s recent decision to float the
customs exchange rate presents an additional challenge
Customs duties on cars with engines of 1,300 CC capacity for local car assemblers and could lead to more price
imported from Europe were eliminated in 2016. For cars increases at a time when they are struggling to compete
with engines of 1,600 CC and above, reductions took place with no-customs imports.
annually at a rate of 4% annually until they reached 0%
this year. WEAK PURCHASING POWERO
Imported cars are still subjected to a VAT at 14%, a 0.5% Car sales in Egypt were hit hard by the devaluation of the
industrial and commercial profit tax, a 3% resources Egyptian Pound in November 2016, which slashed local
development fee, and a 1% additional tax. Following the incomes by 50% in some cases. Automotive sales in Egypt
tariff elimination, the market prices of cars of European decreased by 40% in 2017, as consumers saw their
origin have since gone down (ranging between 2.6% and
8purchasing power fall. Vehicle sales have since gradually
rebounded.
SOCIAL INFLUENCE – LET IT RUST
The sales decline has been somewhat attributed by
some observers to the social-media campaign “Let it
Rust”. Let it Rust began in late 2018 and went viral in
early 2019 in conjunction with the EU-zero customs
mark. The social media led to boycotts by consumers
in order to curb price rises. While the campaign has
since garnered hundreds of thousands of supporters,
measuring its precise impact on passenger cars
market sales is quite difficult.
Source: Frost & Sullivan 2017
According to AMIC, Egyptian passenger car sales declined
It was only months after the ‘Let It Rust’ campaign that the
by 6.7% by end of H1 2019, compared to H1 2018 (74,084
Egyptian Prime Minister, Mustafa Madbouly, issued a
cars were sold from January to June 2019, compared to
decision- in August 2019- to form a committee to control
79,474 cars in 2018). This decline has been attributed to
Egypt’s passenger vehicles prices. The Committee, headed
a number of factors, including a viral social media
by the Chairman of the Consumer Protection Agency and
campaign called ‘Let It Rust’, volatility of the car market,
includes members of the tax and customs authorities, is
and the declining price of the US Dollar against the
not mandated to impose mandatory pricing. Its mandate
Egyptian Pound.
is to monitor the market and the random increase in prices
of imported cars, including customs and other fees, with
the aim of rebuilding consumer trust in automotive
suppliers.
Automotive Sales Shares
January-May 2019 The Minister of Supply, Ali El Moselhy explained during a
press conference in August 2019 that the Committee will
inspect the papers and documents with dealers and
Trucks importers of cars, review the intentional import invoices
22% for the agent, and review the invoice of customs release
Buses and fees paid.
10% Passenger
Cars SMALL, UNDERUTILIZED MARKET
68%
Source: CEIC Database
9Egypt’s small- but growing- domestic cars market, factories, taking into consideration that most
compared to other global markets, has made the country manufactured vehicles in Morocco are exported.
a less attractive destination for a number of major car Recently, Morocco attracted feeding industry pioneer
manufacturers. This in turn has contributed to the companies such as Nexteer, Gestamp, Ficosa and Fiat
underutilization of existing factory capacity and a very subsidiary Magneti Marelli to open plants in the
slow growth rate of research and development (R&D) Kingdom.
investments in Egypt’s automotive industry. Government incentives for automotive investments:
5-year corporate tax exemptions (extendable to
Egypt’s small domestic market and limited R&D promote export of production), VAT exemptions,
investments has, in some cases, contributed to the modern infrastructure, skilled workforce, and free
production of low tech, less expensive and lower quality trade agreements with the US and EU.
automotive components by the feeding industry- rather
than higher tech components such as engines and
gearboxes- which has to tight revenue margins. This had TURKEY
restrained auto feeders’ ability to expand and multiply
their production due to insufficient financial resources
and small market demand for such products.
Turkey is the 15th largest automotive manufacturer in
FLOATING THE CUSTOMS EXCHANGE RATE the world, the 5th largest in Europe and 2nd largest
producer of commercial vehicles (CVs) in Europe.
In September 2019, the GoE decided to revert back to Turkey produces nearly 1.5 million cars annually (1.55
setting the customs exchange rate on daily basis according million in 2018). Domestic sales have exceeded 1
to FX rates by the CBE, after two years of setting it monthly. million cars, while annual exports reach $32 billion
dollars’ worth of automobiles.
With no exemption scheme for local automotive
In 2018, Turkey exported 1.3 million cars, with 85% of
manufacturers, experts have warned of possible
vehicle production in Turkey being destined for
implications, including the increase of prices in an already
foreign markets during that year.
troubled auto market. Local manufacturers could be
Turkey attracted car manufacturers such as Ford, Fiat,
forced to increase the prices of their vehicles at a time
Honda, Hyundai, Renault and Toyota, Mercedes-Benz
when they are faced with fierce competition with the
and M.A.N and has become a center of excellence,
custom-exempted imported European cars.
particularly with respect to the production of
commercial vehicles.
REGIONAL COMPETITORS 1,100 auto-parts manufacturers, TIER 1 and TIER 2
supporting the production of OEMs are present in
Turkey. Localization rate of OEMs varies between 50-
MORROCO 70%.
More than 250 global automotive feeding suppliers
use Turkey as a production base; 28 of them rank
among the 50 largest global suppliers.
Morocco attracted renowned automotive firms, such 175 R&D and design centers belonging to automotive
as Renault and Peugeot, to open local plants. manufacturers and suppliers are operational in
The automotive industry is Morocco’s leading export Turkey. Proven as a production hub of excellence, the
sector and has made the Kingdom the leading car Turkish automotive industry aims to enhance its R&D,
manufacturer in Africa, surpassing South Africa’s design and branding capabilities.
331,000 manufactured passenger vehicles with
345,000 passenger vehicles in 2017. Morocco is also
positioning itself as a key supplier for European auto
10 A fiscal consolidation program that introduced a VAT
and a gradual reduction in energy subsidies and wage
ALGERIA bill
Major energy sector reforms by addressing the power
outages and reestablishing Egypt’s potential as an oil
The Algerian Government seeks to enhance Algeria’s and gas producer by reducing pricing distortions and
position as a local automotive manufacturing base, arrears
with a particular focus on enhancing the local auto-
These reforms were complemented by efforts to improve
feeding industry.
the business climate and attract private investment,
Steps taken include introducing a quota system on
starting with legislative reforms and the introduction of
automotive importers to “force” investments into local
new laws on industrial licensing, investment and
assembly. The government reduced car imports from
bankruptcy.
600,000 units in 2014 to 300,000 units in 2015. Vehicle
imports were capped at 79,000 units for 2016, 55,000 Macroeconomic indicators have reacted positively to
in 2017, and at 50,000 cars in 2018. these reforms, with economic growth accelerating (5.6%
The Government recently announced that 40 foreign GDP growth in FY 2018/2019), a parallel foreign currency
car and other vehicle manufacturers requested exchange rate market contained, narrowed external
permits to join major car manufacturers Renault, deficits and increase in international reserves (over $44
Peugeot and Volkswagen in opening assembly plants in billion).
Algeria.
Government incentives: Algeria will grant The success of Egypt’s economic reform program should
manufacturing operators exemption from VAT, have a positive impact on the local passenger vehicles
customs duties and taxes on profits. It will also grant market as the country’s GDP growth and consumers’
free land and ensure subsidized energy costs. purchasing power gradually increase.
The incentives should help Algeria reach an integration
SIGNATORY TO PREFERENTIAL TRADE AGREEMENTS
rate of 15% in the first 3 years of business activity and
40% in the 5th year to aid development and the use of Egypt has the potential to become a regional/global
locally produced components. services, production and re-export hub. In addition to its
Automotive policy review expected in 2019 with higher central geographic location, Egypt has access to large key
emphasis on local content and nationals’ employment. markets through various multilateral and bilateral trade
agreements with the US, EU (zero customs on automotive
OPPORTUNITY IN EGYPT imports and exports), Middle Eastern and African
countries. Egypt is a signatory to the COMESA, the new
MAJOR IMPROVEMENTS IN MACROECONOMIC
Pan-African FTA, GAFTA, AGADIR. Egypt has also signed
INDICATORS
FTAs with Turkey and the Mercosur bloc.
In 2016, the GoE began implementing a bold economic
reform program to stabilize the economy and restore
confidence in the face of macroeconomic imbalances and
microeconomic distortions.
Program flagship reforms included:
The liberalization of the exchange rate by eliminating
currency overvaluation and foreign exchange shortages
Source: GAFI
11INCENTIVES GLOBAL CHALLENGES FACING THE AUTOMOTIVE
INDUSTRY
The GoE is preparing to roll out new incentives to promote
local manufacturing and assembly of vehicles and its I. Brexit
feeding industries in Egypt. Such incentives will include
notable custom discounts on automotive components,
with a view to enhance local car assemblers and
manufacturers’ ability to strengthen their market position
and export their products to foreign markets by utilizing
Egypt’s FTAs. TIER 1 automotive suppliers will be targeted
with smart policies and competitive incentives to enhance
Egypt’s R&D investments.
THE SUEZ CANAL ECONOMIC ZONE
Spreading on 461 km2, the Suez Canal Economic Zone
(SCZone) is a thriving free zone and trade hub along the
banks of the Suez Canal. Strategically located on a major
business global trade passage, the SCZone offers investors
the following privileges:
100% foreign ownership of companies in the zone
100% foreign control of import/export activities
Imports exempt from customs duties and sales tax
Customs duties on exports to Egypt imposed on
imported components only, not the final product
Fast-track visa services
Uncertainty rising in the European Union over how the
United Kingdom is going to exit; elevated the risk of
staying in the UK and made a lot of investors retreat their
expansion plans. More than 275 companies are in the
process of moving or have already moved business from
Britain to other countries in Europe. The impact of a no-
deal Brexit on the automobile industry would be
potentially catastrophic as 8 out 10 passenger cars made
in UK are exported. Jaguar Land Rover, Rolls-Royce Motor
Cars, Toyota, Honda, and Nissan are among the OEMs that
have voiced concerns over Brexit.
COMPETITIVE COST
II. New emission control regulations
Egypt’s cost is one of the most competitive in the world. The EU’s introduction of the worldwide harmonized light-
The fully loaded operating cost is substantially lower than duty test procedure for emissions controls has been
Eastern Europe and comparable to some of the lowest considered, by many, to be a major setback to the car
cost countries in the Far East industry. The procedure’s implementation has slowed car
production.
12III. Labor calls to increase wages increasing their use of local components. Custom breaks
Labor strikes are fueling in car manufacturing plants in can be split into different tiers according to the
Eastern Europe demanding high wages. Audi percentage of local content used in the vehicle’s
(Volkswagen), Bosch, Westcast and Suzuki are some of the production.
companies that have faced such strikes in countries such
as Hungary, the Czech Republic, Poland, Slovakia, Belgium, TAX BREAKS
Romania, and Serbia.
Providing tax exemptions or reduction for OEMs and
feeding companies: VAT exemptions, income tax
POLICY RECOMMENDATIONS exemptions and/or corporate tax reduction.
The automotive sector has become increasingly globalized For example, Moroccan incentives to OEMs have included
as OEMs outsource a large portion of their manufacturing a tax exemption in the first five years of operation,
processes. Countries such as India, China, Thailand, Turkey, followed by an 8.75% tax for 20 years and
Iran, South Africa, Brazil, Poland, Romania and others 17.5% tax afterwards
have emerged as major players in the international
automotive sector as cheap locations to assemble EXPORT INCENTIVES
‘Completely Knocked Down’ (CKD) and ‘Semi-Knocked
Down’ (SKD) vehicle kits, and as producers of specific Providing further export-based incentives proportionate
components and spare parts that are shipped to local component input. This may include direct
internationally to assembly sites in other countries. subsidies, direct pay backs, low-cost loans, tax exemption
on profits made from exports and government financed
OEMs have become increasingly vertically integrated international advertising.
across multiple countries and continents demanding their
Tier 1. INFRASTRUCTURE PREFERENTIAL PRICES
Egypt stands the chance to grow as a regional influential Offering competitive costs and facilitated procedures for
automotive player if it upgrades it game. There are key land and infrastructure allocated for automotive factories
blocks of factors to influence future landscape of and research and development (R&D) facilities.
automotive in Egypt.
EXPEDITE APPROVAL PROCESS
RECOMMENDATION # 1 Reviewing- with the goal of simplifying and shortening-
FDI approval procedures, on land allocation, registration
and licensing, customs and taxes. Export support and
Signal strong political support for local manufacturers, subsidies are available in Egypt but further export support
resume the dialogue with key industry players to develop could be for automotive manufacturers.
an automotive policy that ensures a fair level playing field
with custom-exempted vehicles moving forward and pave RECOMMENDATION # 2
the way for additional OEMs and feeding companies to
open units of their supply chain in Egypt.
Attract automotive R&D investments. Developing an
This policy may include the following incentives, which
incentives program for R&D centers in Egypt, including
should be reviewed and updated every 5 years:
automotive R&D, is likely to increase investments from
CUSTOMS INCENTIVES OEMs and feeding industries. To achieve this, an
incentives package, carefully crafted for the R&D
Introducing amendments to the Customs Act, providing industry, may include:
customs discounts to car manufacturers in return for
13PATENT RELATED INCENTIVES Potential economic benefits (including reduced
energy use and environmental benefits on air quality
Providing incentives for researchers to register their and emissions)
patent in Egypt and/or import their patent from abroad Identifying additional investment needs and benefits
for registration in Egypt. (in terms of reduced energy use and reduced
environmental impacts)
FISCAL STIMULUS
Assessing the overall impact of the strategy and take
Providing a tax break for companies developing up of electric vehicles on energy demand should also
technology related products and/or having R&D projects, be carefully considered.
product development, production or commercialization of
The strategy should also seek to set out alternative
technology oriented products. charging infrastructure business models, based on an
analysis of successful business models in other
A TECHNOLOGICAL FOUNDATION FUND
countries (such as the Netherlands and Norway)
Creating a technological foundation fund to provide
financial support to innovative projects, proposed by RECOMMENDATION # 4
individual firms or groups of enterprises in the R&D sector.
Selection is geared towards projects involving the
development of new products, services or processes. Consider a curb - in the new motor traffic law- on licensing
passenger vehicles that are 30-years old or longer after
SCHOLARSHIPS thoroughly studying the implications of such a decision.
Supporting scholarships for researchers to work on R&D in This decision will also have a notable environmental and
relevant firms and thus stimulate linkages between the health impact, taking into consideration that over 50% of
private sector and academia. The goal is to strengthen passenger vehicles on Egypt’s streets are more than 15-
firm's capacity to innovate by placing R&D personnel in years old, which leads to higher consumption of gasoline.
firms and provide professional development
opportunities for scholars. RECOMMENDATION # 5
R&D EQUIPMENT IMPORTS
Providing custom duties exemption for imported Seek to ensure market stability and growth by enhancing
equipment used in R&D related activities. the predictability of policies and regulations associated
with the automotive sectors and feeding industries.
RECOMMENDATION # 3
Develop a comprehensive, well thought out e-mobility
strategy, that takes into account the following:
Egypt’s market potential
National readiness and policy framework
A critical assessment of relevant technical aspects
(proposed size, electricity requirements, costs,
configuration, etc.)
Project risks, ownership and actors involved
14ABOUT LYNX STRATEGIC BUSINESS ADVISORS
LYNX Strategic Business Advisors is an Egypt-based government relations, public policy and investment advisory consultancy
firm. With a combined service of over 150 years in government and public policy, LYNX partners offer a government relations
practice that combines both a strategic perspective together with a carefully planned execution in support of its clients.
LYNX leverages its principals’ wealth of experience to provide high-value research-skilled government relations services
combining timely, relevant and rigorous assessment, with innovative targeted solutions based on sound judgement
designed to address our clients’ strategic requirements. The firm’s services are tailored to the client’s needs and priorities
but are fundamentally structured around delivering strategic insights and assessments that clients need to seize
opportunities through in-depth understanding of the policies, politics and players at the heart of the relevant business
opportunity or challenge.
LYNX advises clients on means of positioning their companies as a trusted partner to Egypt by supporting clients’ efforts to
develop constructive relationships with unrivaled access to expertise and invaluable connections with key policymakers and
influencers, including government, parliament, industry associations, civil society. The firm enhances the client’s ability to
refine its business and political message and conveyance to suit the local culture and business objectives. It also tracks and
identifies economic, policy and regulatory developments in the client’s sector of interest through up to date analysis of new
laws and regulations and potential issues of concern.
LYNX has published public policy notes on emerging topics as a contribution to the relevant ongoing public debates. They
include two ‘Industry Notes’ on the opportunities and challenges pertaining to the electric vehicles sector in Egypt and
Egypt's emerging status as a regional gas hub. LYNX also published a Business Bulletin on Egypt's new export rebates
program. The three documents can be found on LYNX’s website.
LYNX is a partner firm to Thebes Consultancy, an Egyptian Limited Liability Company established in 2012 and exclusively
specialized in the provision of legal information, regulatory updates, legal compliance, training and regulatory advice in the
area of commercial, financial and business law in Egypt and the Arab World.
www.lynxegypt.com info@lynxegypt.com 4 Latin America Street, Garden City, Cairo +2 02 27944331
© LYNX Strategic Business Advisors 2019
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